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Paul Marshall

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2020-09-21

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2020-09-21

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1. “fighting against biases is to have several voices in the room to challenge each other and work out what is actually empirical and what is based on a bias or emotion.”

   2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source

2. “I guess there's kind of long-term convictions and then there's biases. We have a long-term conviction that skill is persistent, that if somebody is good, they stay good Unless almost invariably when it goes wrong it's actually a character thing rather than a skill issue so people can go wrong for character reasons as I talk about in the book whether it's hubris issues in their personal life divorce death disease there are lots of things that can go wrong for people personally and then you have to deal with that if it goes wrong at the level of the portfolio you have to evaluate Was it luck that they changed their approach such that what we identified as the persistent source of skill is no longer viable? And those are all decisions we have to take. And there are decisions we try to take together as well, because one of the best ways of”

   2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source

3. “And again, nobody's going to get hurt. Whereas if I took alpha signals from internal managers and said, this guy's good at healthcare, so I'm going to use that healthcare signal. He's going to or she is pretty quickly going to say, wait a minute, you're piggybacking on me. And so the data is not needy. It doesn't have a personality. It's not demanding. So you can do much more. That's the big advantage of the external data. The big advantage, I would say, that fundamental managers have over systematic investing generally is their ability to react quickly to a new paradigm. And so when you get a big event in markets, you'll typically at least for two or three months. And we had this with both Brexit and Trump. The fundamental managers reacted faster and did better than the systematic side. But I would say in the coronavirus, actually, it's been the other way around.”

   2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source

4. “don't have with the external contributors and then the other thing is with the external contributors you can blend their signals with lots and lots of other signals to create effectively almost a completely new product”

   2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source

5. “The advantage of sourcing them externally is you can do what you want with their ideas. Their feelings are never going to be heard. You can virtually hire and fire. So you can effectively, if you choose, have 600 million of capital, which follows the ideas of a person. They won't know that, but you can using that almost in an undial, you could if you choose an undiluted way use one person's ideas. You have to put them back on your book, you have all of their headache of having a good contract, etc., which is a much more complicated thing. The managers that we do have on our books are all people we're very committed to and we have a very, very low turnover compared with any other of the comparable funds who have lots of managers. People staying with us a very long time, most of them indefinitely, because we believe in backing their skill and we believe their skillful. There is a stickiness to that which”

   2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source

6. “use a lot of information that they can get from the systematic side as inputs into their decision making. And we've also now introduced quantum investing which is effectively use that word to refer to non-traditional types of information sources so mobility data, emails, social media data, retail, etc. So that's another source of information and alpha signals which we can blend into the results. What you have in the end is multiple, multiple strategies which are all good in their own right which are blending together to give a very high return per unit of risk.”

   2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source

7. “So we've always worked on the basis, first of all, that we were size constrained in everything we did. And that led us to allow different strategies to develop their life and to distribute the capital as much as possible, really, and because of all the benefits of diversification, which I talk about in the book and the benefits of blending, you can blend lots and lots of different alpha signals. So the way martial waste has evolved is we have a huge number of different signals which were blending together in the systematic side, which includes both the tops business we still call tops and a systematic business in its own right. Then we have the fundamental side, which has evolved from having essentially one strategy when we started to now there's a round 15 strategies run by fundamental managers and covering different sectors and different geographies. But they also then benefit from all of the infrastructure of the firm and”

   2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source

8. “level of complexity when we started introducing other systematic signals that other competitors used pure systematic funds and blending those signals with the top alpha contributor signals and it's continued to evolve and evolve every year with new types of signals extra complexity and it's now highly sophisticated and complex optimization process but the underlying personality and driver of it remains the alpha signals from the individual contributors.”

   2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source

9. “It's been an amazing evolution because when we started it, we didn't even optimize between the contributors. We just took every portfolio equal weighted. We didn't try and allocate, optimize and so on. It moved in a series of steps. First of all, we started looking just optimizing between those portfolios. And then we started saying, well, you can actually optimize individuals and you can analyze their skill. You can analyze what some are good at and what they're not good at, whether it's longs and shorts, which sectors they're good at, which market environments they're good at. And then you could start to blend them with each other in different ways and score, create signals for the strength of the alpha in each person, in each portfolio. And we looked at the patterns and relationships between the portfolios. We then globalized it. So we took it to US and to Asia and did the same thing. And then there was a whole other...”

   2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source

10. “Here we then settle in said, let's put some capital behind this. And we put by that stage Eureka was a kind of two and a half billion dollar fund. We put 200 million, so 10% of the fund into a program which basically replicated the ideas of all of the brokers who were sending them ideas into us in real time. And it got off to a huge flying start, 2002.”

    2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source

11. “That was really Ian's genius and vision and it actually started with a discussion about how we measure our brokers. And like most people those days, it was pretty random. It was kind of a quarterly finger in the air who's done a good job. They get X share of the wallet. And Ian said, well, there must be a better way of measuring this and doing it systematically. And we asked Anthony Clake at that stage was a 21-year-old summer trainee still at Oxford to think about how to do that. And he came up with the idea of giving the 40 brokers who covered us at that time a virtual portfolio and said, you run this virtual portfolio, we'll measure whether you actually create any alpha, any value. And much to my surprise, because I was pretty skeptical about it, I had the typical arrogance of a buy-side guy, they actually generated a lot of alpha. And so we, having measured it for about a year,”

    2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source

12. “trading my backpack whether it was in longer term investing and that was that was the original proposition and we raised $50 million of Rich Half was from Soros the rest was from family and friends which in those days was a lot of money and it was enough to get started”

    2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source

13. “The original Marshall Waste Planet Strategy was the Eureka Fund, which is still the flagship. And it was European equity longshore. We were about the third hedge fund in Europe, so we're well behind the curve vis- ⁇-vis the US, but we were relatively early in Europe. We divided the fund into two components, really, what we call core and trading. And the core investments were Ben Graham or Philip Fisher, long-term quality companies, Philip Fisher, you like companies which have great quality business and a quality management. So they've got to be lucky and smart. And then the trading side, which was much more higher turnover, very catalyst-based, looking very opportunity in the market. And one was lumpy, concentrated, and the other was less concentrated and much more active. And that played to both of our backgrounds.”

    2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source

14. “I was talking to other people about setting up a long only business, and I hadn't thought of doing a hedge fund. It was Ian proposed it, and it took me three or four months to discuss it with them and negotiate it and so on. And then we took a leap.”

    2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source

15. “Ian I'd known from the remarkably the very first day I worked in the city because he was head of sales or at least very senior on sales he was only twenty five actually but he had a meteoric career and he called me on my first day at the Warburgs and so we got to know each other and worked together very closely for a few years then we slightly went different ways because he then moved and became head of equity trading at Deutsche Bank and I got a call from him In nineteen ninety seven saying let's have lunch never does lunch so this had to be quite important that's the second lunch he'd done in his life I think and we went at lunch and he said let's set up a hedge fund and as it happened at that point”

    2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source

16. “I went through quite a long process of looking at different types of ways of analyzing companies, EVA and CFRI and kind of different ways of putting all the numbers together. But the bottom line was I suppose it's Ultimately, you're looking for companies where the long-term value is not appreciated by the market and the long-term value is defined as the sum of all the cash flows. So you've got to understand. why the cash flows of the companies will generate in the future will be significantly more than the market is appreciated. So it's very much weighing. Ben Graham weighing machine. but also combining that with catalysts, so it's never enough for me to just be looking at understanding a long-term undervaluation. You've got to have a catalyst which will draw people's attention to the valuation. So that was the kind of...”

    2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source

17. “It's been a very, very long apprenticeship, and I'm still learning. So I didn't learn massive amount actually in Zurich. I then went to business school in Siad, and then I went to Warburgs and went into the European Investment Department and had some very good mentors and really learnt on the spot. And it was learning by doing and learning by my mistakes from the beginning, which is how I started to learn. The right or wrong thing about ProShip Mercury or Warberg's mercury was the fund management business was that they gave you money to manage almost immediately. So actually in my case, far too early, but I was given money to manage within six or nine months, which is ridiculous. And I paid the consequences with some of the things I got wrong. But I learned by doing really.”

    2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source

18. “Looking at a company, it's both art and science and it distills so many different things from the understanding, the management, the industry, the structure of the industry, the position of the company in the industry through to the macro background interest. You have to understand every dimension really of everything to do with the economy from the macro right down to the very small detail. And it's both romantic and historical and empirical and just everything.”

    2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source

19. “I first got interested in that. I was working as a trainee in Lloyds Bank International in Zurich. And it was very early days, first thing I did after university. And I had to do a rotation in every financial function of the bank. And I did credit analysis, FX trading. Everything, letters of credit. At the end of the two years, I worked in the investment department with a Mr. Maura, and that was the first time I found something that I actually really loved. And it was just being asked to look at a few companies and think about the stock market. And that was the first time.”

    2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source

20. “Covers Paul's background, the history of martial waste, and the firm's evolution. We touch on his thoughts about quantitative and qualitative investing and on internal and external fund management. And then we turn to his new book, covering lessons relating to market efficiency, skill, portfolio construction, shorting, man and machines, size, and careers. Please enjoy my conversation with Sir Paul Marshall. Paul, terrific to see you.”

    2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source

21. “My guest on today's show is Sir Paul Marshall, a co founder and chairman of Marshall Waste Asset Management, which is Europe's largest hedge fund overseeing forty eight billion dollars in assets. The firm specializes in long short equity management and notably combines fundamental investing with systematic and quantitative strategies. Paul recently authored the book 10.5 lessons from experience, perspectives on fund management, and the show completes a trifecta of consecutive book authors whose work I thoroughly enjoyed this summer. Alongside his long history in the business, Paul has been deeply involved in philanthropy focused on education, and he was knighted for his work in 2016. And if that's not quite enough, his son Winston is a band member of the popular folk rock band Mumford& Sons. Our conversation”

    2020-09-21 · Capital Allocators · Paul Marshall – 10 ½ Lessons from 23 years at Marshall Wace (Capital Allocators, EP.157) · IDENTIFIED FROM THE TRANSCRIPT · source